Water companies have seen their share prices diluted in recent weeks by rising political worries and tougher regulatory rulings, so Tuesday’s full-year results from Severn Trent PLC (LON:SVT) will be closely eyed.
John McDonnell, the Labour party’s shadow chancellor, confirmed last week that the next Labour government would aim to pay just book value to investors as part of its plans to renationalise England’s water companies. Book value of the 15 companies would be less than £15bn, compared to the compensation of £44bn estimated by the companies themselves, based on market value.
Moreover, water regulator Ofwat last month published its draft determinations for Severn Trent and fellow listed peers Pennon PLC (LON:PNN) and United Utilities PLC (LON:UU.), setting out the prices the companies can charge over 2020-25.
In its preview of the trio’s upcoming results, Deutsche Bank said they should feature “double digit earnings growth for each stock and could provide an opportunity for management teams to give a further update on their positioning for the next regulatory period” but “probably too early for the companies to outline new dividend policies”.
The German bank has pencilled in a 17% increase in Severn Trent’s full-year pre-tax profit (PBT) to £376mln and a 16% increase in adjusted earnings per share (EPS) to 140.5p, with the dividend per share (DPS) up 8%.
Can Halfords keep costs under control?
Switching to retailers, a profit warning back in January put the brakes on the full-year outlook for bikes and car parts retailer Halfords Group PLC (LON:HFD), so investors are already braced for a 13%-19% drop in full-year pre-tax profits.
The group’s troubles weren’t helped by a mild winter, which meant people were buying fewer bits-and-bobs to weatherproof their cars.
Operating margins have also come under pressure as Halfords ploughs money into its stores, while trying to keep its prices down. For every pound that customers spend, Halfords only makes 6.6p of profit.
“Plans to boost face-to-face services and keep prices competitive make sense, but we’d like to see underlying costs remain under control,” said Hargreaves Lansdown analyst George Salmon.
Second quarter recovery boost for Topps Tiles
The tile retailer revealed in an April trading update that like-for-like sales in the second quarter to March 31 rose 1.8% compared to last year when the ‘Beast from the East’ meant customers stayed indoors to avoid heavy snowfall and icy temperatures brought over to the UK from Siberia.
Sales were also helped by this year’s later timing of Easter, which is typically not helpful for retailers as the bank holidays reduce their number of trading days.
Topps Tiles is expected to post revenue of £108.8mln for the first half, compared to £109.4mln last year, with like-for-like sales growth of 0.2% as a stronger second quarter offsets a weak start to the year.
Analysts at Peel Hunt have said the better-than-expected performance means first-half profits will likely beat current market estimates. They estimate pre-tax profit of £7.9mln from Topps, up 10% year-on-year.
Provident Financial to update in shadow of hostile NSF bid
Subprime lender Provident Financial PLC (LON:PFG) is scheduled to post a first quarter trading update on Tuesday, although investors minds will probably be more concerned about the ongoing hostile takeover bid from smaller rival Non-Standard Finance PLC (LON:NSF), controlled by former Provvie boss John van Kuffeler.
NSF said on 15 May that it had received unconditional acceptances for its bid representing 53.53% of the FTSE 250 subprime lender’s share capital which, while a majority, was much lower than the 90% threshold needed to force out minority stakeholders and take complete control.
However, NSF has since lowered the threshold to 50% and is continuing an attempt to force through the takeover.
With this in mind, whether Tuesday’s update is good or bad could provide the push for some shareholders to either switch sides or stay put. Though 14.6% stake holder Schroders PLC (LON:SDR) said on Monday that it remained of the view it was in the best interests of shareholders which were not also NSF investors to reject the hostile offer.
Significant events expected on Tuesday:
Finals: Severn Trent PLC (LON:SVT), Halfords Group PLC (LON:HFD), Homeserve PLC (LON:HSV), Bloomsbury Publishing PLC (LON:BMY), Assura PLC (LON:AGR), Big Yellow Group PLC (LON:BYG), Electrocomponents PLC (LON:ECM), EntertainmentOne PLC (LON:ETO), Immedia Group PLC (LON:IME), Scapa Group plc (LON:SCPA), First Derivatives PLC (LON:FDP), Warehouse REIT PLC (LON:WHR), Schroder Real Estate Investment Trust PLC (LON:SREI)
Interims: Topps Tiles Plc (LON:TPT), Cranswick plc (LON:CWK), Greencore Group PLC (LON:GNC), Shaftesbury PLC (LON:SHB), UDG Healthcare PLC (LON:UDG), Renew Holdings PLC (LON:RNWH), Premier Veterinary Group PLC (LON:PVG), Nexus Infrastructure PLC (LON:NEXS), Watkin Jones PLC (LON:WJG)
Economic data: CBI UK industrial trends survey; US existing home sales